-------------------- BEGINNING OF PAGE #1 ------------------- UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7245 / November 28, 1995 SECURITIES EXCHANGE ACT OF 1934 Release No. 36520 / November 28, 1995 ADMINISTRATIVE PROCEEDING File No. 3-8887 - - - - - - - - - - - - - - - - - -x : In the Matter of : ORDER INSTITUTING : PROCEEDINGS, MAKING : FINDINGS, AND IMPOSING ROSWITHA KLEMENT-FRANCIS AND : CEASE AND DESIST ORDER WILLIAM ANTENORCRUZ : : : Respondents. : - - - - - - - - - - - - - - - - - -x I. The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that administrative proceedings be, and they hereby are, instituted against Roswitha Klement-Francis ("Klement-Francis") and William Antenorcruz ("Antenorcruz"), (collectively, the "Respondents") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether the Respondents violated Section 17(a) of the Securities Act and Section 15(a) of the Exchange Act. In anticipation of the institution of these administrative proceedings, Klement-Francis and Antenorcruz have submitted Offers of Settlement ("Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings set forth below, herein, except as to jurisdiction, which is admitted, the Respondents consent to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing a Cease-and-Desist Order ("Order") and to entry of the findings set forth below. -------------------- BEGINNING OF PAGE #2 ------------------- II. FACTS On the basis of the foregoing, the Commission finds the following-[1]-: A. Respondents 1. Klement-Francis Klement-Francis, age 52, was a co-founder and principal of Rossan Enterprises. Klement-Francis has never been registered with the Commission in any capacity. 2. Antenorcruz Antenorcruz, age 53, was a co-founder and principal of Rossan Enterprises. Antenorcruz has never been registered with the Commission in any capacity. B. Background This proceeding involves the conduct of Klement-Francis and Antenorcruz in a scheme to offer for sale a program of securities transactions involving so-called "prime bank" securities. As the Commission noted in its October 1993 "Information for Investors" Release on "So-Called 'Prime' Bank and Similar Financial Instruments," "the staffs of the federal financial institution supervisory agencies are unaware of the legitimate use of any financial instrument called a 'Prime Bank' note, guarantee, letter of credit, debenture, or similar type of financial instrument." C. Respondents Offered for Sale Prime Bank Securities During the fall of 1993, Klement-Francis and Antenorcruz entered into an informal partnership known as Rossan Enterprises and collaborated in the design and development of a "Private High Yield Investment/Roll Program" (the "Rossan Roll Program" or "Program"), which was premised on the purchase and sale of so-called "prime bank" instruments purportedly issued by the top one hundred banks in the world. The Program required participants to invest a minimum of $10 million, and authorize Rossan and its principals to use those funds for the "systematic purchase and sale" of prime bank instruments from unspecified banks. The prime bank instruments were to be re-sold through several "banks and securities houses," which purportedly had "instant buyers for seasoned paper." Respondents claimed that by repeatedly purchasing these prime bank instruments at a discount and reselling them at a premium, the Program would yield returns of 100 percent or greater within a year with little or no risk to the investor. From December 1993 to at least April 1994, Klement-Francis and one other person offered the Rossan Roll Program to at least forty-six potential investors or agents representing potential investors in numerous states. --------- FOOTNOTES --------- -[1]- The findings herein are made pursuant to Klement- Francis's and Antenorcruz's Offers of Settlement and are not binding on any other person or entity named as a Respondent in this or any other proceeding. -------------------- BEGINNING OF PAGE #3 ------------------- 1. Klement-Francis's solicitations Klement-Francis collaborated with Antenorcruz in the design of the Rossan Roll Program, and prepared the offering materials and the program description. Primarily, Klement-Francis offered the roll program to investors and agents of potential investors identified by one other person, and on at least twenty occasions sent information regarding the Rossan Roll Program to individuals and entities at the request of one other person. In addition, on two occasions, Klement-Francis offered the Rossan Roll Program directly to potential investors without the assistance of any other person. 2. Antenorcruz's solicitations Antenorcruz participated in the design of the roll program. He and Klement-Francis anticipated that Antenorcruz would play the pivotal role of implementing the Program and executing the steps set forth in the offering materials in event that a serious investor was found. Moreover, Antenorcruz permitted Klement- Francis to use his name both on the letterhead of Rossan and in connection with her efforts to promote the program. D. The Misrepresentations Made in Connection with Offers of the Roll Program --------- FOOTNOTES --------- The Respondents made numerous misrepresentations to potential investors in connection with the offers of the Roll Program. Respondents attempted to sell the Roll Program through the use of documents and oral statements containing representations that the Respondents knew, or were reckless in not knowing, were false. At the least, the Respondents had no basis for believing that the representations were accurate. For example, the promotional literature accompanying the offering materials states that "there are legitimate buyers and sellers of bank debentures (the key players in roll programs) out there making excellent returns on their investments." These materials further stated "There are many different humanitarian and developmental programs for which roll programs are sanctioned by -------------------- BEGINNING OF PAGE #4 ------------------- the U.S. Government." Clearly, such representations were false or were made with reckless disregard of the truth or falsity of the statement. The offering materials state that an investor can expect an average profit of six percent per week, with a likely return on investment of one hundred percent or greater within one year. Such predictions were without foundation of any sort, since Respondents were offering a program premised on repeated transactions involving non-existent instruments. III. OPINION Section 17(a) of the Securities Act of 1933 prohibits fraud in the offer or sale of securities. Prime bank instruments are securities: they fall within the definition of debt securities under both Section 2(1) of the Securities Act and Section 3(10) of the Exchange Act. Furthermore, the Rossan Roll Program that Respondents offered is an investment contract under the three part test set out in SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946), and is, therefore, a security. SEC v. Lauer, 864 F. Supp. 784, 794 (N.D. Ill. 1994), aff'd, 52 F.3d 667 (7th Cir. 1995). Furthermore, Respondents cannot escape liability under the securities laws by arguing that the securities do not exist. See id. at 792. Respondents violated Section 17(a) of the Securities Act by acting with scienter in misrepresenting or omitting material facts in connection with the offer of securities. Aaron v. SEC, 446 U.S. 690, 695-97 (1980). Each of the Respondents knew, or was reckless in not knowing, that the so-called "prime bank" securities and the Roll Program did not exist and, of course, could not have yielded the extraordinary rates of return promised by the Respondents. Respondents failed to ascertain whether any factual basis existed for their representations concerning the instruments and the viability of a program based on transactions involving prime bank securities, and the alleged profitability of prime bank investments. Furthermore, each of the Respondents violated Section 15(a) of the Exchange Act by attempting to induce the purchase of securities in interstate commerce, without being registered with the Commission. -------------------- BEGINNING OF PAGE #5 ------------------- IV. FINDINGS On the basis of this Order and the Respondents' Offers of Settlement, the Commission finds that: A. Klement-Francis and Antenorcruz violated Section 17(a) of the Securities Act by making misstatements or omissions of material fact in connection with the offer of non-existent prime bank securities; and B. Klement-Francis and Antenorcruz violated Section 15(a) of the Exchange Act by attempting to induce the purchase of securities in interstate commerce without being registered with the Commission. V. ORDER Accordingly, the Commission hereby orders, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Klement-Francis and Antenorcruz cease-and-desist from committing or causing any violation of, and committing or causing any future violation of, Section 17(a) of the Securities Act and Section 15(a) of the Exchange Act. By the Commission. Jonathan G. Katz Secretary